Good morning, ladies and gentlemen, and welcome to the Siemens Healthineers 2018 fourth quarter conference call. As a reminder, this conference is being recorded. Before we begin, I would like to draw your attention to the Safe Harbor statement on page two of the Siemens Healthineers presentation. This conference may include forward-looking statements. These statements are based on the company's current expectations and certain assumptions, and are therefore subject to certain risks and uncertainties. At this time, I would like to turn the call over to your host today, Mr. Florian Flossmann, Head of Investor Relations. Please go ahead, sir.
Good morning, ladies and gentlemen, and welcome to our Q4 conference call. The earnings release and Q4 presentation were released at 7:00 this morning, and you can find all documents on our IR website. Our CEO, Bernd Montag, and CFO, Jochen Schmitz, are here with us today to review our Q4 and full year results. Bernd will start with the highlights and some strategic overviews. Jochen will follow with more details on our financial performance. Afterwards, there will be enough time for a Q&A session. We would like to ask you to limit yourselves to two questions each so everybody has the chance to get a turn. With that, I would like to hand over to Bernd.
Thank you, Florian. Good morning, everybody, and welcome to our Q4 earnings call. Before diving into details of our quarter, I want to spend a couple of moments reflecting on what happened in fiscal year 2018. It had been a truly exciting and rewarding year for us with some major achievements. First of all, our IPO in the first half of the year started a new era for our company and has been hugely successful and rewarding. Being a separate listed company gives us much more distinct profile and a much higher visibility. With the IPO, we also put a new, more agile organization into operation. We de-layered the organization both vertically as well as horizontally, and also implemented a more focused go-to-market approach. We also put our cost savings program into practice and achieved the first EUR 60 million savings in fiscal year 2018.
With the introduction of the Healthineers Performance System, we will drive the change to become an even leaner organization. Despite all the changes, our organization didn't get distracted. We brought many leading innovations to market. The launch of Atellica Solution, which will put diagnostics on a different performance track, and the introduction of two completely new ultrasound platforms, as well as many new imaging products from a very strong innovation pipeline. True to our motto, "We say what we do, we do what we say," we also delivered on our financial promises. Organic revenue growth came in with 3.7%, well within our guidance range. Our adjusted profit margin with 17.2% was in the lower half of our guidance range, has been heavily impacted by FX of minus 120 basis points in this year. Going forward, we are well positioned to further accelerate our growth dynamics.
In the past years, we have been growing on average by roughly under 3%. Fiscal year 2018 has already been a step in the right direction. A lot of work has been done in the last year in renewing our product portfolio and optimizing our sales organization. Now we can fully benefit from our attractive end markets and will bring our company on a new performance level with regards to growth and profitability. In fiscal year 2019, we already will take a meaningful step towards achieving our midterm targets. Jochen will give you more details on our expectations for the next year in a couple of moments. Before going through the Q4 highlights, I want to share some market share data for the U.S., which we just have received.
In fiscal year 2018, we have been again highly successful and have been winning significant market share in Imaging and Advanced Therapies. On a four-quarter rolling basis, we won two to three percentage points in both segments. Gains in our Molecular Imaging business have been especially strong, but also the other large Imaging businesses performed strongly. As a highlight, every second MR scanner sold in the United States is a Siemens Healthineers machine. This again proves how competitive our offering is and that we are leading the market in Imaging and Advanced Therapies. Now let's continue with our Q4 highlights. Revenue growth has been strong with 4.2%, especially if you consider that Q4 last year was our strongest quarter with 5% growth. That means we didn't have easy comps this quarter. Again, our very strong Imaging business has been the driver with roughly 6% growth.
Also Diagnostics performed well this quarter with 3% growth. We continue to receive excellent customer feedback on Atellica Solution, and this also shows in our shipment numbers. With 999 analyzers shipped this year, we are at the upper end of our target range. Overall, instrument sales at Diagnostics grew in the low teens in this quarter and for the full year. That is an important leading indicator and points towards improving reagent sales and overall growth going forward. Adjusted margins have been again heavily impacted by FX headwinds of minus 210 basis points year-over-year. Operationally, that means ex FX, we had strong performance this quarter with adjusted margins being roughly 150 basis points above prior year ex FX. Adjusted net income was slightly down year-over-year on FX and higher taxes.
Free cash flow has been strong, roughly 30% above prior year with a cash conversion rate of 1.05. Of course, we also want that our shareholders participate in our good performance this year. As promised at the IPO, we will pay a dividend for the full fiscal year and not just for the time after the IPO. We will propose a dividend of EUR 0.17 per share, which equals 55% of our reported net income. We focus on partnerships with our customers to jointly address their key challenges. Here, we made good progress this year. We recently won several large deals like our retention deal with Primary Health Care, which is the second-largest lab provider in Australia. We placed more than 70 Atellica Solution analyzers in a lab automation setting with a contract duration of seven years.
With the Catholic Medical Center in Eunpyeong in Korea, we won a multimodality deal, the largest so far in Korea. The deal included not only a range of imaging systems, but as well the establishment of a center for artificial intelligence. In Germany, we won a managed equipment service contract with the Klinikum Braunschweig, which is one of the largest hospitals in Northern Germany. syngo Virtual Cockpit connects more than 100 outpatient clinics and hospitals with 64 Siemens Healthineers scanners in a joint network at Alliar in Brazil. syngo Virtual Cockpit helps to shorten scan duration and to give more precise diagnostics to produce rapid results that overcomes expert bottlenecks at one location. With the Medical University of South Carolina, we were able to form a unique partnership for joint innovation and transformation of care delivery.
I want to highlight two of several projects we will drive to increase workflow efficiency and patient experience. The first project aims to improve the efficiency in stroke care by reducing the door-to-needle time from 90 to just 20 minutes. Reducing this time is critical for the patient's recovery. Getting the right diagnosis and treatment as fast as possible can make a huge difference for the patient. It's the difference between walking out of the hospital shortly afterwards or being dependent on nursing for the rest of life. The second project I want to highlight is the enhanced use of the digital twin technology. A kind of artificial intelligence, a digital twin is a digital replica of a physical asset, process or system.
In this case, the digital twin enables planning teams to quickly determine the impact of changes that would be costly, if not impossible, to test in the real world. It helps to stimulate how efficient workflow solutions or health innovations actually are in a new facility, and thereby helps to both optimize patient experience as well as to maximize hospital efficiency. In fiscal year 2018, we continued to broaden our portfolio with many product launches, including a lot of industry-first features. Some clear highlights are our new MR scanners with our BioMatrix Technology that automatically captures and corrects patients' physiology and motions coming from breathing, cardiac motion, or head movements. For our next ultrasound platforms, we received excellent customer feedback. Customers really appreciate the brilliant image quality and the very intuitive and efficient workflow.
There are many more products on this page, but I want to emphasize that this is a typical pattern for our business. We typically introduce a new platform every three years in each of our imaging modalities. This also shows the innovation power that is embedded in our organization, and which will drive our future performance. Roughly two-thirds of our revenue is generated with products which are not older than three years. Looking at our current overall portfolio, I dare to say that this is the strongest portfolio we have had in many years. And we will see more product launches at RSNA with several new imaging systems and a big focus on AI, artificial intelligence. AI and digitalization will be a major driver for the transformation of healthcare delivery in the future. We are perfectly positioned to profit from this development.
We have the largest patent pool with more than 500 patents in machine learning, including deep learning patents. We have a large data lake of curated images, which is crucial to develop and train new AI algorithms and applications. Only with sufficient high-quality data, new AI algorithms can be developed and trained. With our supercomputer, we run around 40 AI experiments every day. As of today, we have 40-plus AI-enriched offerings. That is 10 more than in January when we hosted our Capital Market Day. Chest CT scans are an excellent example where AI could support radiologists. The amount of Imaging exams grows much faster than the number of radiologists. A typical radiologist has therefore less and less time to read an image and to make a diagnosis.
Especially reading a CT chest exam is highly complex, since the radiologist has to examine many different organs at a low reimbursement. AI-trained software solutions could support the radiologist with an automated analysis of the entire chest CT scan to recognize and quantify abnormalities, for example, lesions in the lung, coronary calcifications, or vertebral fractures. This would significantly increase the speed, precision, and quality of a diagnosis. Together with our other product launches in Imaging, artificial intelligence will play a major role at this year's RSNA. Let's have a closer look on the progress of our Atellica Solution. The product is very well received in the market, and we continue to win a high share of competitive contracts. More than 35% of our analyzers are placed in accounts where we have not been the incumbent provider.
The two biggest deals this quarter have been a large automation deal with 40 analyzers with a new customer, Laborizon in France, and primarily, a large retention deal. Shipments this year have been a great success. With the famous 999 analyzers shipped this year, we reached the upper end of our target range. Next year, we expect further strong growth with additional shipments of 2,200 to 2,500 analyzers, which would bring the number of cumulative shipments to 3,200 to 3,500 by the end of the next fiscal year. The expansion of our market reach is well on track. We received approval for Japan in Q4 and expect approval in China in the second half of FY 2019. We also made excellent progress on our assay menu. Since our Capital Market Day, we received approvals for several additional assays, both in the EU and in the U.S.
We now have a very competitive menu with 202 approved assays in the EU and 100 approved assays in the U.S. With the excellent track record of this year, we are confident to reach our FY 2019 Atellica Solution targets. We are on track for our midterm shipment target of 7,000 analyzers shipped by end of 2020. For the rollout of Atellica Solution, we have already been using methods of our Healthineers Performance System, or in short, HPS. HPS introduces lean methods across the business to empower our employees to identify and eliminate waste by focusing on customer value. It has been launched this year and more than 500 employees have already been trained in HPS core methods. Built on the foundation of our seven principles of Healthineers, HPS enables us to deliver on our strategies, drive execution, and develop our employees.
This will be a big focus going forward and will help us to become an even more efficient and lean company, driving overall performance. With that, I would like to hand over to Jochen for the financials.
Thank you, Bernd, and also a very warm welcome from my side. I believe this is the perfect handover to talk about our cost savings program. We are fully on track to achieve our targeted savings. In the second half of this year, we achieved the first savings of EUR 60 million, mainly from the so-called standalone savings. With the new delayered organization implemented in fiscal year 2018 and further improvements like functional cost reduction, we will see further EUR 140 million cost benefit in 2019. In total, we will realize EUR 240 million of cost savings. EUR 50 million of these realized savings will be reinvested in our strategic growth field in digitalization and artificial intelligence, also highlighted by Bernd beforehand. The biggest part of the implementation costs have been booked in fiscal 2018. For the next year, we expect additional charges in the neighborhood of EUR 30 million.
In total, we will see less charges as initially planned. The initial planning on the implementation cost has been on the conservative side. In some instances, we also found alternative, less cost-intensive implementation solutions. Let's now have a closer look at our financial performance in Q4. Starting with orders. We posted very strong 13% organic order growth in Q4, driven by very strong growth in service orders, but also equipment orders were strongly growing in the high single digits. Now, breaking the equipment orders down into segments. Imaging posted mid to high single digit equipment order growth. Advanced Therapies had an especially strong finish, with equipment order growth in the low 20s. Orders at Diagnostics grew at the same rate as revenue due to the book-and-bill nature of the business.
Revenue in Q4 was strong, with 4.2% growth against an already good Q4 in the prior year. We saw growth in all regions with strong growth of 5% in the U.S. and solid growth in EMEA with 4%. Growth in China has been soft, but this is against some very tough comps in the prior year. At the same time, order growth in the quarter and full fiscal year has been strong in China, and we expect China to be a growth driver also in fiscal year 2019. Our adjusted profit margin in Q4 was 18.2%. Year-over-year, this is a decline of 70 basis points. However, we faced heavy foreign exchange headwinds in Q4, as indicated of 210 basis points. This headwind came mostly from an unstable hedging position versus prior year quarter.
Last year, we have been still hedged at a very favorable rate, while this year our US dollar exposure has been hedged at around 120. Taking out the foreign exchange headwind, we see a strong operational improvement year-over-year of 140 basis points from earnings conversion and the first impact of the cost savings program. Adjusted net income came in lower due to higher tax expenses this quarter compared to last year. This could only be partially compensated by lower interest expenses post-IPO. These interest expenses in Q3 and Q4 represent now the new normal post-IPO and are a good estimate for our interest expenses going forward, adjusted obviously for foreign exchange fluctuations. On a segment basis, Imaging was driving growth in Q4 with a very healthy 6% organic growth.
Ultrasound, computed tomography, and X-ray products had a great finish to the fiscal year and achieved a significant revenue growth. Adjusted profit margin in Imaging decreased slightly year-over-year, primarily held back by strong foreign exchange headwinds of 220 basis points. Diagnostics sequentially improved growth quarter-over-quarter to 3% in Q4. Instrument growth continues to be in the low double digits, and for the first time in several quarters, our reagent revenues has also been growing. On the adjusted profit development in Q4 2017, we had a low double-digit divestment gain from the sale of the smaller business to DiaSorin. Excluding this effect, profit margin developed flattish year-over-year. Advanced Therapies grew by 4% in Q4, with balanced growth both in equipment and in service. Growth has been especially strong in Asia, Australia, driven by China.
Adjusted profit margins has been the most heavily impacted by foreign exchange, with a headwind of around 350 basis points. If you exclude the foreign exchange headwind, Advanced Therapies showed strong operational improvement on earnings conversion and positive mix. Our cash conversion in Q4 has been very strong with the conversion above one. Imaging and Diagnostics had a cash conversion rate of one and above on stringent cash management in the last quarter of our fiscal year. Advanced Therapies was below one due to a buildup of contract assets and receivables. The change in other assets and liabilities stems from increased liabilities in conjunction with personnel expenses. We see this typically at the end of the fiscal year, where we build up provisions for cash outs, for example, for incentive payouts in the upcoming quarters.
Our capital expenditure of €191 million is primarily driven by factory build-outs for Diagnostics in China and in the U.S. Next year, we will see a further increase of CapEx spending, driven by the build-out of our diagnostic factories. This should ease after 2021 and decrease to a more normal level like we have had in the past. Coming to our last slide, our targets for fiscal year 2019. Next year, we plan to grow revenue by 4%-5%, which is already within the target range of our midterm framework. We expect that Imaging and Advanced Therapies will continue to perform well. Diagnostics will be the main contributor to the additional growth. There will be an improvement from this year's level of around 1%, but we still will be below our midterm growth targets. Diagnostic is an install base business, with 90% of revenues coming from reagents.
Although we had strong instrument growth in the low teens this year, it will take some more time until our installed base and reagent revenue grow mid-single digit. Nevertheless, our targeted Atellica Solution shipments of 2,200-2,500 next year will support our growth and margin ambition. Also, with regard to adjusted profit margin, we will see a significant improvement next year with a target range of 17.5%-18.5%. The midpoint of our guidance range represents a margin of 18% and 80 base points improvement from this year's level. On segment level, we should see margin improvements at Diagnostics and at Imaging. Advanced Therapies will continue on its high level of profitability. One short remark on foreign exchange. As we already have started hedging for next fiscal year. Currently, we are hedged at 1.17 for the majority of the first nine months next year.
Our fiscal year 2019 targets are based on current foreign exchange rates. One last remark on tariffs. We have several mitigation measures in place to reduce our exposure on tariffs. After mitigation, we see an impact of EUR 30 million-EUR 40 million on pre-tax profit for fiscal year 2019. On the net income and EPS level, this translates to a strong EPS growth of 20%-30% next year. Please be aware that the EPS guidance is on reported EPS. It is not adjusted. It's not adjusted for severance payments or other effects. With this, I conclude my presentation. Hand over to the operator for the Q&A session.
Thank you, gentlemen. We will start today's question and answer session, where we would like to ask you to limit yourselves to two questions. If you wish to ask a question, please press the star or asterisk key, followed by the digit one on your telephone keypad. Again, ladies and gentlemen, please press star one on your telephone keypad. Our first question comes from the line of Michael Jüngling from Morgan Stanley. Please go ahead.
Great. Thank you, good morning, everyone. I have a question on Atellica and secondly, on the adjusted profit margin guidance for the current fiscal year. On Atellica, if I look at the shipments, can you talk about the price stability that you're achieving with Reagent sales? Are they as good as you expected at the beginning of last fiscal year? On Atellica as well, the utilization trends of Reagents on the machines installed earlier this year. On the adjusted profit margin, the guidance of 17.5%-18.5%, can you please clarify what would take you to the bottom end of the range and the high end of the range? Just clarify what impact FX at current rates would have on the group margin. Thank you.
Let me start by answering the Atellica question. We are satisfied with the pricing levels. That comes in as planned. Certainly, this is a competitive market, but the product is very convincing since most of the positive impact comes from the tremendously positive business case that the product enables for the customer. That's how they look at it, and that is also what gives us good pricing power. When it comes to throughput, this is early in the ballgame, because it takes time until the analyzers are fully online and on an asymptotic behavior. Also there we have no reasons to be concerned and are happy with the development. Regarding profitability questions, I hand over to Jochen.
Yeah, Michael, good question. First of all, as I mentioned in my brief update, we have hedged roughly the dollar exposure for the majority for the next nine months at a level of 1.17. This gives us some very minor tailwind for next year-over-year, very minor. Talking about low teens in basis points. No real significant impact expected from foreign exchange so far, but we never know. What will bring us to the upper and lower end, I think this will then, let assume foreign exchange stays according to assumptions. This should be, I would say, relatively clearly a function of growth and mix. Growth, we gave you a range of 4% to 5%. Gives you some indication on that. Mix obviously always plays a role. Generally speaking, we feel confident with our guidance.
Great. When you say mix, are you talking about the growth differential between your various divisions? Or what do you mean by mix? How could it impact, let's say, the business by 50 basis points or 100 basis points?
The mix comes in a lot of fashion. Can be the mix between the different segments. Can be a regional mix. Can be a modality mix in Imaging. Mix comes in a lot of fashion. We know a certain, I would say we have a backlog, therefore we have a certain insight into the revenue development, but this is not as big as it is in a classical, I would say, large project business. Therefore, mix is still a certain level of uncertainty or opportunity. However you want to see this. It comes in a lot of fashion.
Okay. Thank you.
You're welcome.
Next question comes from Ian Douglas-Pennant from UBS. Please go ahead.
Thanks very much. Yes, it's Ian Douglas-Pennant at UBS. Firstly, on the Chinese quota that we had out last week, could you comment on that and what you're hearing from central agencies on their enthusiasm for healthcare capital equipment spending going forward? Does that signal a new era of growth? Secondly, given the strong order growth we've seen over the course of this year and also very strong growth in Q4, why shouldn't we expect continued mid to high single-digit growth in Imaging and AT next year? Thanks.
Yeah. On China, what we need to be clear on is that these are maximum quota, which are issued, but that there is no investment commitment behind it. This is, and I've read comments from colleagues of you already, which I find very precise. This is a slight positive because it shows that the potential is there, but it is not an investment plan. It is priced in, so to say, in our guidance for the year. The other question regarding growth in the Imaging segment. We are happy with how the fiscal year has turned out. We aim for a similar momentum in the next quarters.
I think as I pointed out also, we see China on the order side and then also on the revenue side, definitely a growth driver also for 2019. This has been kind of backed up by the announcement given last week. That is how I would see this. With regard to Imaging, I would say for the next quarter, we would expect decent growth again.
Great. It's very helpful. Thank you.
Next question comes from Romain Zana from Exane. Please go ahead.
Thank you for taking my question. I have two. The first one would be on Diagnostics. Instruments are up double-digit, as you said, which implies that consumables are rather declining. When do you expect consumables utilization to pick up, I guess, from your new customers mainly? Is that something we should already see in 2019 with a positive impact on margin? The second question is on the adjusted profit margin guidance and the cost-saving, actually. Looking at the cost-saving program, it seems pretty new to me that this EUR 50 million of reinvestment in artificial intelligence and digital, at least on the communication, but you keep the same midterm profit margin target. Are these investments new, or were they already planned? In that case, is there something that is balancing these extra investments? Thank you.
Romain, thanks for the question. I do start with the Diagnostics question. I think we saw a decent instrument growth over the full fiscal year for Diagnostics in the low double-digit arena. As I pointed out, in Q4, we saw growth also for the first time this last fiscal year, also on the reagent side. Not a huge growth. You should always have in mind, revenue is split 90% reagent, 10% instruments. We expect to see, and I think in the last calls, I always mentioned that the normal mix of reagent and instrument revenue is 90% to 10%. Obviously, with the new franchise, Atellica, it is more the opposite. We expect this to change rather quickly.
Not directly to the normal 90% to 10%, but definitely to a more balanced or slightly positive revenue portion from reagents already in fiscal year 2019, with corresponding positive impact on margin.
To the question about the reinvestment from the cost-saving program. This is not new. This is baked in our midterm profitability targets. There was always the assumption that a part of the savings we will have by moving to this more agile organization and also the standalone savings that a portion of it will be reinvestment into the future fields, into much more value-added aspects, and especially in our efforts in digitalization and AI.
As you point out, it is important to note that we did not change our midterm targets despite the investment.
Okay, very clear. Can you just also clarify that the target for next year, for this fiscal year, basically on margin, already includes the mitigating impact on the U.S. tariff? Or will it be adjusted? Okay.
As they are today.
Yeah.
There may be currently an impact of EUR 30 million-EUR 40 million after mitigation on our bottom line before tax. This is part of the baked into the guidance. Of course, if there are completely new developments, we don't know, but the current scenario as known is baked in.
Thank you very much.
Welcome.
We can now take our next question from Patrick Wood from Bank of America. Please go ahead.
Perfect. Thank you for taking my questions. I have two, please. Firstly, on Atellica. Again, you're still running ahead in terms of the proportion of systems that are placed relative to plan with the competitors. I.e., at about, I think it was 35% relative to, I think your budget was for 20. The economics of this system are obviously heavily leveled towards that, given an incremental reagent stream when you replace a competitor system. My question is: Is there a risk if you still remain at this higher than expected or budgeted level of upside to the guidance range, not necessarily for 2019, but more for the longer term? I'm looking in terms of margins, more specifically. The second question I had is on the reported EPS growth range. It's quite a large window, the 10% split between the bottom and the top end of the range.
I'm just curious as to what's driving such a large gap in that reported growth. Thank you.
Let me start with the easier one. It's the second one. On the EPS side, I think the 10% delta between 20% growth and 30% growth equals almost 100 basis points on adjusted profit margin. It's slightly higher, but only slightly. If you do the math, this is just to put some, I would say, some rounded numbers into play. We also know that we have a few other items below profit, interest expense in particular, which are, so to say, exposed to foreign exchange variations on the translation side. Therefore, difficult to hedge. Then secondly, tax rate, which will be between 28%-30%, could also have an impact, which comes on top of the 17.5%-18.5% adjusted profit margin.
On the Atellica question, we are very happy about this 35% of wins where we haven't been the incumbent before. These are especially wins in customer segments which are about throughput, which are about people who really optimize their setting for clinical excellence and productivity. These are also the wins we need in order to grow our top line, because just replacing existing units will not do the trick alone. From that point of view, it's a positive. We are confident about placing the additional 2,200 to 2,500 units in this year and to reach the 7,000, but that's also what we need in order to start growing with and above markets in the midterm.
Understood. Thank you. Those are my questions.
Welcome.
Next question comes from Lisa Clive from Bernstein. Please go ahead.
Hi. Two questions. First, just on your ultrasound business. Could you provide a bit more commentary on the strength in ultrasound? I assume this is mainly coming in cardiovascular. Just to clarify, does this show up in the Imaging reporting? Are there any components that are within the Advanced Therapies business? Second, as you continue to build out all these partnerships with big healthcare systems, could you comment on the data sharing components within those agreements? I assume you attempt to get access to patient records so that you can use that for data analytics, artificial intelligence, as just access to data is going to become increasingly important in those arenas.
Yeah. Thanks for the questions. First, ultrasound. The two platforms which we introduced, on the one end, the Juniper, and then even more importantly, the Sequoia, which is the new mid-range. Juniper, the new mid-range, and the Sequoia, the new gold standard in the high end. They have a clear focus on what in ultrasound is called general imaging. Yeah. This is where their strength at the moment is, yeah. Going into the cardiovascular space is a next step. Yeah. They are mainly general-purpose machines, which is the biggest segment. Yeah. Ultrasound, from a segment reporting point of view, is exclusively shown in Imaging. Yeah. Yes, there's more and more a combination of interventional labs with real-time ultrasound, but then the revenue is split and shown in the respective segments. Yeah. The other question regarding data access. This is a very important topic. Yeah.
We handle this on a case-by-case basis. There's no general theme about it. We have, as I mentioned, also when we talk about the two corporations, for example, in the Catholic Medical Center in Korea, we have an AI research program in place. We do the digital twin research and project with MUSC. There we always have agreements in place so that both parties benefit from the data. We have a clear strategy overall, independent of individual customer partnerships to grow our so-called data lake. Which comprises more than 300 million imaging and other studies, which is vital for training our AI algorithms, and is one of the core assets of the company.
Thanks very much.
We can now take our next question from Martin Wilkie from Citi. Please go ahead.
Yeah, thank you. Good morning. It's Martin from Citi. Just a couple of questions on Imaging. You talked about gaining share in the U.S., and I was just wondering if you could let us know, normally, how persistent over time can share gains be once you have a certain technology? Is it something that you sort of hold for a few quarters, or it can be longer in terms of, if you have a better product than the competition. It's just also in Europe, GE mentioned that they had some product launches there, suggesting that they would grow faster in Europe following that. On the flip side, do you feel that some of that gain in the U.S. has been offset by any losses you may have seen in market share in Europe? Thank you.
Answering the second part first, no, this has not been offset. We see the continuous market share gains on a global level. Now let me explain a little bit. This is not a cyclical thing, where it's now about the one guy has a new product and then it takes a little bit of time, and then somebody else is there. When you look at the last 10 years, you can almost put a straight line into our market share gains. Because in the end, what you see there is a continuous stream of innovations. I mentioned in my talk that every three years, in every modality and every segment in each modality, whether it's high-end, mid-range or low-end, we come up with a new product.
This may sound now a little bit arrogant, but having the best product every year, and having the next level of innovation in each segment, in each product line, is for us the normal course of business. The market share gains especially when you look at them from a rolling four-quarter basis, and when you average around all Imaging modalities, they are a clear indicator of overall innovation power, of having the best sales force, of reinvesting into innovation, of making your service network more efficient, and so on. It is not just the flavor of the day because there is one little product novelty.
Maybe one other aspect which is important or related to the market share gains is the growth of the installed base. If you look at our revenue growth on service, we are very stable in the 5% comparable growth arena in this case. This is only doable if you have this ability with your innovation pipeline.
Okay. Thank you.
Next question comes from Veronika Dubajova from Goldman Sachs. Please go ahead.
Good morning. Thank you for taking my questions. I have two, please. The first one is actually on the margin guidance for 2019. I'm still struggling a little bit to reconcile the 17.5%-18.5% with some of the benefits that you're going to get this year, whether that's the cost savings or the currency. Maybe you can comment a little bit more on that, because if I do the math, even with the reinvestment, you should be seeing at the very minimum, at least 80 basis points of margin improvement year-on-year. I'm surprised that the low end of the range is as low as 17.5%. If I can follow up on that. I know you've addressed that partially, but I'd like to get a little bit more detail.
My second question is looking at the cash flow statement, the cash tax was quite low this year. Is there something going on with your cash tax structure that we should be aware of, or is this just a function of timing? Thank you.
Thanks, Veronika. It's Jochen speaking. On the second, you asked about the cash out for taxes. In Q4, as you rightfully pointed out, very low cash out related to taxes due to the fact that we funded last quarter in the U.S. our pension scheme. There's a tax benefit cash-wise came in this Q4. This was an extraordinary item, so to say. On the adjusted profit margin guidance, I think we said 17.5%-18.5%, midpoint is 18%, means 80 basis points improvement year-over-year, if you make the midpoint. As we had this discussion about that, we do not expect
Any major tailwind from foreign exchange. When one of your colleagues asked beforehand, talking about the bandwidth between 17.5% and 18.5%, I said this will be a function of growth on the one hand and of mix on the other hand. As you can see, in particular, in Imaging but also in Advanced Therapies, mix can play a significant role. As our business, the reach of order backlog is maximum 50% of revenue. This 50% is still open for mix changes in all kinds of fashion. Therefore, this is just to be cautious here. Therefore, we give 17.5%-18.5%. But we also feel today not bad about using the midpoint.
That's very helpful. Thank you.
Welcome.
Next question comes from Scott Bardo from Berenberg. Please go ahead.
Yeah, thanks very much, and congratulations on your first year trading post IPO. Question on Imaging, please. Obviously performing strongly within this segment at around 6% growth in the fourth quarter. I wonder if you can dissect a little bit more, please. What you think is driving this strong growth? Is the market more buoyant than you envisaged at the capital markets day? Is this seen in specific reasons, or is there some evidence of some competitor disarray? I wonder if you could just walk us through that a little bit more, please.
Yeah. Okay. Thank you for the question. Two ways to look at it. More on a general basis. We have Imaging is 40% of the Imaging top line is service and 60% is equipment. Our service business grows by 5% typically. That is always a solid growth contributor. On the equipment side, our assumption for the midterm is that the market on the equipment side grows by 3%. You can add 1%-3% or so to that for outperforming the market for the continuous market share gains we talked about. That brings you into a 5% range when you do the math overall for the Imaging segment. We have currently, it might be that the market is growing a little bit more than the 3%, which I would be careful to consider a new normal.
Because these are investment decisions, and once the investment decision is made, it shows there's no additional investment needed and so on. To rationalize a little bit where this growth comes from, I hope that this math helps a bit. You see 5% service, you see the outperformance of the market, and then you probably also see one percentage point or so currently, which comes from a little bit higher market growth than usual.
Okay. Very good. Thank you. Perhaps just a financial question for Jochen, please. If one were to assume the midpoint of the margin guidance for 2019, as you highlight around 80 basis points, can you give us some feeling actually as to how you see that developing across the lines in the P&L? Is this more gross margin-driven, or should this be operational leverage amongst your functional costs? Thank you.
Generally speaking, I would say the majority should come out of the gross margin. It was some benefit I would expect also from the SG&A line, not so much from the R&D line. That would be my best guess now.
Very good. Thanks very much, gents.
Welcome.
Next question comes from David Adlington from JP Morgan. Please go ahead.
Morning, guys. Thanks for the question. Just sort of following up from Scott's point, really, just on the Imaging market, I think you kind of intimated the market's probably growing a little bit quicker than it has done historically, maybe for the last four or five quarters. Just wondered what you thought maybe what had driven that uptick in market growth, and how long do you think that that high growth rate might be sustainable for? Secondly, just a near-term question on the tariffs, EUR 30 million-EUR 40 million. That's obviously the whole year number. Would we expect to see sort of greater headwinds in the first half, and then as you put through the offsets to see that coming through the tailwind in the second half? Just wondering about the phasing of that EUR 30 million-EUR 40 million. Thanks.
Yeah, on the Imaging side, I think what currently is a positive is that globally, every market is intact. We don't see in a major geography I say, that people are holding back investment decisions. That is one of the reasons. When we have a healthy market in the U.S., not spectacular, but healthy market in the U.S. A healthy
Low single-digit growth in Europe. Healthy situation in the major emerging markets that helps. This is what currently is, from my perspective, the reason why I'm convinced that this is the reason why it's a little bit higher. There's nothing like a global cycle. I mean, that is sometimes a question we get. There's not a global replacement cycle or something. This is more the sum of 100 or 160 different healthcare economies, which currently are more on the healthy side. That can also change. I mean, not dramatically. We don't foresee any dramatic changes. Currently, this is the main reason for it. It's not a technology or replacement wave reason and also not some kind of a global healthcare cycle. The second question was about the tariffs.
I can take that if you like that. On the tariff side, I would not expect to see significant fluctuations between the quarters. I think there is maybe the risk in brackets that it might be a bit higher in the beginning until all the mitigation measures really do its work. I would not expect significant fluctuation by quarter.
Great. Understood. Thank you very much.
We can now take our next question from Gunnar Romer from Deutsche Bank. Please go ahead.
Gunnar Romer, Deutsche Bank. Thanks for taking my questions. The first one would be with regard to your comments on the divisional outlook. Just curious why you wouldn't expect some acceleration for your Advanced Therapies business in light of the very strong order intake you talked about in the fourth quarter. Also on the divisional outlook, what do you think are the main drivers of margin expansion that you are hinting to for your Imaging business? A housekeeping question, just on CapEx. I don't know whether I've missed it, but do you have any guidance for us regarding CapEx in the current year? Thanks.
Should I start with CapEx? I would say CapEx, I would expect to see it in a similar or slightly higher level than fiscal year 2018 and 2019. Generally speaking, as we are full in the phase of building out the manufacturing site in Walpole and China. I would say that will be in that ballpark, including operating leases in the EUR 800 million arena, I would say. On the margin side, in Imaging, we expect to see Imaging in the 4%-6% arena, obviously, and this helps from a conversion standpoint in that business. Also Imaging will also benefit, obviously, from the cost-saving program. On Advanced Therapies, we do not expect a significant tailwind, or we expect them to be on a relatively high level.
We had a very strong Q4 in profitability with more than 22%. That lifted them up to almost 20% for the full fiscal year, 19.6, if I'm right, on adjusted profit. We will introduce a major platform at the end of the or within the fiscal year, more towards the end. Might be that we see some more or some higher intensity on R&D to finalize that project and so on. Generally speaking, we feel that with Advanced Therapies, we are well on our track to achieve our midterm targets on the 20%-22%. No significant lift up this fiscal year.
Yeah. There was the question around growth. I mean, yes, we are of course very happy about the order growth we have seen. This typically also in this business takes a little bit of time until these systems are installed. There is more to be done than when a piece of imaging is installed typically, because this is like equipping an interventional room. You also, maybe when you look into our past material, we had a very strong growth quarter in the Q1 of last fiscal year. This strong order book also is necessary to replicate the growth because of a period of tough comparison ahead of us.
All right. Thanks.
Okay. Operator, let's take the last questions, please.
Last question comes from William Mackie from Kepler Cheuvreux. Please go ahead.
Good morning. Thank you for taking the question. I'd just like to focus on the market growth again, if I may. Looking back over the quarters, there's been a reasonable amount of volatility in comparable growth across Europe or the Americas or Asia this year. I note you're more optimistic about the current level of demand across Imaging and a number of other markets. With reference to your guidance for full-year revenue growth, can you perhaps talk through how you see the U.S.? I hear you've been more optimistic about China and also Europe, and specifically Germany developing in 2019. What is in your assumptions with regard to market growth by geographic breakdown?
This is now more a question regarding Imaging Advanced Therapies, I assume. The Diagnostics market is a more stable market because of the 90% maintenance payment, it's of recurring nature. I think the question typically about market growth is the investment decisions which are done in Imaging Advanced Therapies. We believe, looking forward, that in the U.S. and Europe, it will be a low single-digit market growth. While in the emerging countries, it will be in the high single digits. Typically, the mix of our business is about two-thirds to one-third developed to emerging countries. When you do the math, our assumption as specified in the capital market is 3% for Imaging equipment and 4% on the Advanced Therapies side. Potentially, this is currently, you can add a percentage point or so.
No big dramatic change, the geographies, as I said in another question, are more or less intact. We don't see declining markets at the moment.
Is it a fair observation to say you have a very high comparative in the first quarter, at least in China, but a much lower one in the U.S.? As the year develops, at least for the beginning of the year, we should see good growth within the U.S., but perhaps lower growth in China initially.
That could be the case. As I said, there's also two ways to look at it. There's the order side and there's the revenue side. We have been extremely happy with the finish in the U.S. in terms of orders. These orders will, on the other hand, take time until they get translated into revenue. Also when we speak about these larger partnerships, also the revenue can be spread over or even over multiple years. In general, it's true that last year we had a stronger start in China and a not so strong start in the U.S., so that the comps are as you said.
Thank you very much.
Okay. Thank you everybody for participating today. As always, myself or the team will be available if you have any more questions. Thank you and see you soon.
Thank you.
Thank you. Bye.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. A recording of this conference call will be available on the investor relations section of the Siemens Healthineers website. The website address is www.corporate.siemens-healthineers.com/investorrelations.